Tax Day 2024

Seven Big Changes for Tax Year 2023

Before we skip ahead to this year, everything you need to know about tax year 2022, and filing your taxes in April is here in this blog “Proactive Year-end Tax Planning for 2022 and Beyond”.

Inflation Adjustment

Last October 2022, an inflation adjustment was announced by the IRS for tax year 2023. The increase is around 7%, which will affect your federal tax bracket and other amounts. The adjustment is a bigger jump than what we see each year, and will help some people stay in a lower bracket. That’s a helpful change.

Income Tax Brackets Change

The seven tax brackets for income tax stayed the same in 2022. For 2023, the IRS has notably changed the income thresholds. Compare the changes below for those seven tax rates.

Click your scenario below to expand and compare the rates between tax years 2022 and 2023:

Standard Deduction Increase

For the 2023 tax year, the deduction is going up at $900 to $1,800 depending on your tax scenario. If you take the standard deduction to lower the income you can taxed on, this is a nice plus. For single filers (and married filing separately), the deduction increases $900. For married couples, it’s up $1,800. For heads of households, it’s up $1,400.

For those over 65 or blind, this deduction is up $1,500. For the additional scenario of being unmarried (and not a surviving spouse), it’s $1,850 higher.

Capital Gains Tax Thresholds Change

For 2023, the income thresholds are going up for long-term gains. Short-term gains are still taxed as ordinary income. This impacts tax on the profits during the sale of an asset, like a stock transaction. This includes sales of cryptocurrency, too.

Earned Income Tax Credit Rises

This is a refundable tax credit designed for qualifying earners. It may or may not apply to your scenario, but the refundable credit is going up. Depending on your income and number of children, the earned income credit (EIC) is $560 to $6,935 for tax year 2022.

For 2023, the max is increased to $7,430. For that maximum, you must be qualify and have 3 children or more.

Side note: you may still qualify for the EIC if you do not have children, though the EIC requirements still apply. If you have questions, please contact us.

Gift Limit Goes Up

For tax year 2023, you can now give gifts up to $17,000 per person without having to filing a gift tax return. This is an annual limit to be able to exclude certain gifts. Other rules may apply, depending on the gift.

If you are planning to give gifts and want to plan in advance, please contact us.

Other Changes That May Apply to You

Quick notes on adoption, estate tax and FSAs, below:

We Are Here to Help

Please keep in mind that the rules for these options and changes can be more complicated, depending on your tax scenario. Have a question? Reach out anytime. As always, we look forward to helping you with your tax returns and helping you to plan your future.

– The Financial 1 Team

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. Past performance is no guarantee of future results. The views stated in this letter are not necessarily the opinion of Tatyana Bunich (CEP) (RFC) or Financial 1 and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Please note that statements made in this article may be subject to change depending on any revisions to the tax code or any additional changes in government policy. Please note that individual situations can vary. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount is subject to its own five-year holding period. Investors should consult a tax advisor before deciding to do a conversion.

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